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Understanding the National Infrastructure Fund · The Mwango Capital Podcast

• 0:00
  SPEAKER_01: Welcome to Mwango Spaces.
• 0:01
  SPEAKER_01: It's Tuesday evening.
• 0:02
  SPEAKER_01: Just want to have a discussion on the National Infrastructure Fund.
• 0:06
  SPEAKER_01: Last time we were here, James was the CEO of Sentam.
• 0:08
  SPEAKER_01: Now he's the CEO of the National Infrastructure Fund, the inaugural CEO, so to speak.
• 0:12
  SPEAKER_01: So we're here to dissect the fund, that transition Thank you very much, Eric.
• 0:15
  SPEAKER_01: First, good evening, Eric, and good evening, ladies and gentlemen.
• 0:18
  SPEAKER_01: Thanks for joining today's Expenses.
• 0:19
  SPEAKER_01: And Eric, thanks for inviting me once again.
• 0:20
  SPEAKER_01: Last time when we spoke, I was the CEO of Centum.
• 0:44
  SPEAKER_00: I am now the CEO of the National Infrastructure Fund and the former CEO of Centum.
• 0:49
  SPEAKER_00: I was appointed last Monday the CEO of the National Infrastructure Fund.
• 0:53
  SPEAKER_01: Let's start from where you are.
• 0:54
  SPEAKER_01: You had 18 years at the same institution.
• 0:56
  SPEAKER_01: You must have some reflections on your time there and a couple of questions perhaps
• 1:01
  SPEAKER_01: on what you think about your time there, how it went.
• 1:04
  SPEAKER_01: Maybe you can start with high level reflections and then I'll dig one
• 1:08
  SPEAKER_01: or two questions here and there.
• 1:09
  SPEAKER_00: Yeah, I was actually there, Eric, for more than 18 years.
• 1:12
  SPEAKER_00: I was 17 and a few months, nine months as CEO.
• 1:16
  SPEAKER_00: And from 2001 to 2006,
• 1:18
  SPEAKER_00: I was there after 2009,
• 1:20
  SPEAKER_00: turned with the management manager, then left and came back as a CEO.
• 1:23
  SPEAKER_00: So a lot of reflection.
• 1:24
  SPEAKER_00: I built my career.
• 1:26
  SPEAKER_00: That's where we did a lot of things.
• 1:28
  SPEAKER_00: So the organization grew from a fairly small company.
• 1:31
  SPEAKER_00: We took it over from ICDC and set it up in 201 and scaled it.
• 1:36
  SPEAKER_00: We set up many different subsidiaries in almost every sector of this economy.
• 1:41
  SPEAKER_00: So it's been a period of great learning, great joy, many lessons.
• 1:45
  SPEAKER_00: I met wonderful people.
• 1:46
  SPEAKER_00: In my time at Sancom, worked with some of the best in the industry.
• 1:50
  SPEAKER_00: Some are deceased, like the late Chris Rubin.
• 1:52
  SPEAKER_00: Worked with many great individuals, people like Frankie Larry.
• 1:56
  SPEAKER_00: So when it comes to legacy,
• 1:57
  SPEAKER_00: there are a couple of questions perhaps that have come in and you've noticed them.
• 2:11
  SPEAKER_01: One is during the time that you had sent them in terms of capital returns
• 2:15
  SPEAKER_01: and share price appreciation.
• 2:17
  SPEAKER_01: And there are some concerns that investors have raised during the time there.
• 2:20
  SPEAKER_01: And I want to give you this platform to be able to address them directly,
• 2:23
  SPEAKER_01: that you're able to answer some of the questions that have been perhaps at the back
• 2:27
  SPEAKER_01: of your mind that you also want to respond to us.
• 2:29
  SPEAKER_01: You've seen the discussion the past couple of weeks.
• 2:32
  SPEAKER_01: So perhaps respond to that in terms of especially capital distribution,
• 2:35
  SPEAKER_01: how it went during your time there.
• 2:37
  SPEAKER_00: Maybe some context is helpful and then we can look at what the mandate was.
• 2:41
  SPEAKER_00: So when I came in late 2008,
• 2:43
  SPEAKER_00: early 2009,
• 2:45
  SPEAKER_00: there was a mandate and my mandate was to increase the value of the company.
• 2:50
  SPEAKER_00: The company had been set up in 1967 and between 1967 to 2008,
• 2:53
  SPEAKER_00: it had grown from a few tens of millions to about 4 billion shillings and
• 2:59
  SPEAKER_00: the shareholders had aspirations to scale it up.
• 3:02
  SPEAKER_00: But also it was in the context of the financial crisis,
• 3:04
  SPEAKER_00: the aftermath of the financial crisis where there was significant loss of value
• 3:08
  SPEAKER_00: of financial assets.
• 3:09
  SPEAKER_00: The then chairman of the investment committee was Chris Kirubi and he lost a lot
• 3:12
  SPEAKER_00: of money in financial assets.
• 3:14
  SPEAKER_00: And so what they wanted to do was to pivot towards tangible assets away from financial assets.
• 3:19
  SPEAKER_00: That's why the company changed its tagline to tangible wealth.
• 3:23
  SPEAKER_00: So my mandate as CEO,
• 3:24
  SPEAKER_00: very similar to what we're going through now with the National Infrastructure Fund
• 3:27
  SPEAKER_00: and we'll be discussing the investment policy statement.
• 3:31
  SPEAKER_00: Or scale up the value of this company.
• 3:33
  SPEAKER_00: Second, number two, diversify away from financial assets to tangible assets.
• 3:38
  SPEAKER_00: And the reason was they had seen a significant drop in their value of their financial assets.
• 3:43
  SPEAKER_00: In fact,
• 3:44
  SPEAKER_00: I remember one day we were in a meeting where Dr.
• 3:47
  SPEAKER_00: Kirubi brought in an expert to just advise him how he could protect value in
• 3:51
  SPEAKER_00: the future.
• 3:51
  SPEAKER_00: And this expert,
• 3:52
  SPEAKER_00: I feel remember him telling us the three assets that hold value in the future in
• 3:56
  SPEAKER_00: the long run is land, earth, and gold.
• 3:58
  SPEAKER_00: And then he said, wait, I want to focus on tangible assets.
• 4:01
  SPEAKER_00: Then they wanted to minimize the addition.
• 4:03
  SPEAKER_00: And the reason for that was he believed that loss of control would lead to loss of strategy.
• 4:08
  SPEAKER_00: Therefore,
• 4:09
  SPEAKER_00: the growth could only be done through debt,
• 4:11
  SPEAKER_00: which is the temporary capital, not permanent new capital.
• 4:14
  SPEAKER_00: And the fifth objective is pay us back our original investment.
• 4:17
  SPEAKER_00: So these are my five objectives.
• 4:19
  SPEAKER_00: Now, if you look at the first one,
• 4:21
  SPEAKER_00: increasing the value of the company,
• 4:22
  SPEAKER_00: we move from 4 billion to roughly 46 billion shiem.
• 4:26
  SPEAKER_00: If you look at minimizing dilution, we never raised any new expertise, so no one was diluted.
• 4:31
  SPEAKER_00: If anything, we did a buyback.
• 4:32
  SPEAKER_00: Diversification into tangible assets, that was the focus, and that's what we've been doing.
• 4:37
  SPEAKER_00: Very much like National Infrastructure Fund,
• 4:38
  SPEAKER_00: you're focusing on specific sectors that are determined by the owners of
• 4:41
  SPEAKER_00: the capital.
• 4:42
  SPEAKER_00: Ultimately, use temporary capital, that's what we get.
• 4:45
  SPEAKER_00: In fact,
• 4:45
  SPEAKER_00: I was rereading my first annual letter to the shareholders in 2009,
• 4:49
  SPEAKER_00: and the point was that we are now going to raise debt,
• 4:52
  SPEAKER_00: because the idea was to use borrowed capital, essentially temporary capital.
• 4:56
  SPEAKER_00: Repair the original investment.
• 4:58
  SPEAKER_00: The tangible value of the assets was about 4.1 billion and
• 5:02
  SPEAKER_00: the mandate will pay us back as soon as you can.
• 5:05
  SPEAKER_00: And that we did.
• 5:06
  SPEAKER_00: So far, we've paid back about 5.8 billion or we are about to pay the last 1 million shillings.
• 5:10
  SPEAKER_00: So Shaola's are back 142.6%.
• 5:12
  SPEAKER_00: As a percentage of opening market value, it's about 100% now.
• 5:17
  SPEAKER_00: When I ask how have we fared relative to other listed companies that were listed at
• 5:21
  SPEAKER_00: the time,
• 5:22
  SPEAKER_00: I was just looking at the numbers, there were 55 companies listed at that time.
• 5:25
  SPEAKER_00: Some of them are since listed,
• 5:27
  SPEAKER_00: some have left the market,
• 5:28
  SPEAKER_00: some are still there,
• 5:29
  SPEAKER_00: but on both dividend as a percentage of Market value of equity and dividend as
• 5:34
  SPEAKER_00: a percentage of book value of shareholder funds, we are about number 18.
• 5:38
  SPEAKER_00: So slightly above average and ultimately pay down the debt.
• 5:42
  SPEAKER_00: So that was the objective, Eric, just to recap.
• 5:45
  SPEAKER_00: Now, the final part of the strategy was once you pay down the debt,
• 5:49
  SPEAKER_00: then start redistributing the capital back to shareholders.
• 5:53
  SPEAKER_00: Because we recognized even at the time that there was going to be tension
• 5:56
  SPEAKER_00: between share price and NAB finance by debt because of subordination
• 6:01
  SPEAKER_00: of shareholders.
• 6:02
  SPEAKER_00: Especially, I mean, you have two groups of shareholders.
• 6:04
  SPEAKER_00: You have shareholders who take a long-term view and they're willing to wait.
• 6:07
  SPEAKER_00: And you have shareholders who want to come in and trade in and out.
• 6:09
  SPEAKER_00: Shareholders want to trade in and out.
• 6:11
  SPEAKER_00: I think I was last on this call before July, I was here on 4th of June.
• 6:14
  SPEAKER_00: And I explained to you and to your listeners that we paid off the debt
• 6:16
  SPEAKER_00: and would start increasing the dividend payout.
• 6:18
  SPEAKER_00: And at that time, the centum share price was around 18 shillings.
• 6:20
  SPEAKER_00: And today it's almost making shillings.
• 6:38
  SPEAKER_00: So if you look at the increase since then, it's about 36%.
• 6:42
  SPEAKER_00: So it's twice the increase in the index.
• 6:44
  SPEAKER_00: So it is true that has been validated that,
• 6:46
  SPEAKER_00: you know,
• 6:47
  SPEAKER_00: that was a temporary challenge that the shareholders are willing to endure
• 6:51
  SPEAKER_00: the interest of creating long-term values.
• 6:53
  SPEAKER_00: So this was a long-term value creation vehicle.
• 6:56
  SPEAKER_00: For the long-term shareholders of the company.
• 6:58
  SPEAKER_00: I was also looking at the register of the company between them and now,
• 7:01
  SPEAKER_00: and I realized that almost all the shareholders on the top 10 are still there
• 7:05
  SPEAKER_00: with only a different of two new shareholders, individual shareholders.
• 7:08
  SPEAKER_00: That is myself and Keshe.
• 7:10
  SPEAKER_00: The other is the rest are there and they've influenced their shareholding.
• 7:12
  SPEAKER_00: That's a recap of what you've done, Eric.
• 7:15
  SPEAKER_01: Some people feel like you sold off the key assets at the company during this period
• 7:19
  SPEAKER_01: of time and not kept them as you exited, especially Cidian, I think.
• 7:24
  SPEAKER_01: What would you say to some of these shareholders in terms of the period that you managed?
• 7:27
  SPEAKER_01: You didn't raise capital, but then again, you did use debt in that regard.
• 7:31
  SPEAKER_01: Did that constrain you also in terms of growth?
• 7:33
  SPEAKER_01: Did you have a sit down with the major shareholders and have an explanation on how
• 7:36
  SPEAKER_01: that impact of not raising capital might do over that period of time?
• 7:39
  SPEAKER_01: No, first, Eric,
• 7:40
  SPEAKER_01: when you've said some shareholders of Cidian,
• 7:42
  SPEAKER_01: how do you know they are shareholders of the company?
• 7:45
  SPEAKER_01: It's the questions that are coming from shareholders.
• 7:47
  SPEAKER_01: I would assume that.
• 7:48
  SPEAKER_01: Yes.
• 7:49
  SPEAKER_00: Okay.
• 7:51
  SPEAKER_00: So we have a few groups of people here.
• 7:52
  SPEAKER_00: We have shareholders of the company.
• 7:54
  SPEAKER_00: We have non-shareholder activists and activists who claim to represent shareholders.
• 7:59
  SPEAKER_00: I was speaking to Fred,
• 8:00
  SPEAKER_00: our company secretary,
• 8:01
  SPEAKER_00: this evening, and actually he's not received any query from any shareholder.
• 8:05
  SPEAKER_00: So I think a lot of these are from either non-shareholders or people claiming
• 8:09
  SPEAKER_00: to represent shareholders.
• 8:10
  SPEAKER_00: And the reason I suspect that is the case is because if you take an example of CDN
• 8:14
  SPEAKER_00: and indeed all exits that we've done,
• 8:16
  SPEAKER_00: I don't know whether you are aware that we take all this to
• 8:19
  SPEAKER_00: the annual general meeting and we have a vote on each and every one of this.
• 8:23
  SPEAKER_00: Are you aware of that, Eric?
• 8:24
  SPEAKER_00: Yes, yes.
• 8:25
  SPEAKER_00: No, every shareholder votes.
• 8:27
  SPEAKER_00: You know, of the shares, what percentage of central shareholders voted to sell CDN?
• 8:32
  SPEAKER_01: I'm guessing 70%.
• 8:34
  SPEAKER_00: In the 2024 annual general meeting,
• 8:36
  SPEAKER_00: 96% by number of shares who are present in that annual general meeting voted
• 8:41
  SPEAKER_00: to send Cydia.
• 8:41
  SPEAKER_00: Only 2% voted against and the rest up did.
• 8:45
  SPEAKER_00: Now, all the exits we have done, it's not just the majority shareholders, but we've taken...
• 8:50
  SPEAKER_00: All these decisions with the entire shareholder body.
• 8:54
  SPEAKER_00: And all of them have voted more than 96% to exit, some as high as 99%.
• 9:01
  SPEAKER_00: The objective of our shareholders was not the composition of the portfolio.
• 9:06
  SPEAKER_00: It was increase in the aggregate value of the assets.
• 9:09
  SPEAKER_00: So to the extent the aggregate value has gone up by 12%, the composition did not matter.
• 9:13
  SPEAKER_00: So I'm speaking for those who voted for.
• 9:15
  SPEAKER_00: So as CEO, I was really prosecuting the agenda of the Shareholders of the company.
• 9:22
  SPEAKER_00: And I recall taking his decision in 209
• 9:24
  SPEAKER_00: that we'll not just have resolutions there per vote by a show of hands.
• 9:28
  SPEAKER_00: I wanted a situation where we have a poll on each and every item on the agenda
• 9:31
  SPEAKER_00: that we really know what shareholders feel.
• 9:33
  SPEAKER_00: So that has been the view of the shareholders, including all this exit.
• 9:37
  SPEAKER_00: They've been very supportive.
• 9:38
  SPEAKER_00: Even if we've got a 70% vote who will not proceed in,
• 9:41
  SPEAKER_00: because it would make we want this sufficient process among the body of St.
• 9:45
  SPEAKER_00: Ham shareholders.
• 9:46
  SPEAKER_01: So in conclusion,
• 9:47
  SPEAKER_01: then when we speak about center,
• 9:49
  SPEAKER_01: then you're confident that you appeared there was a success from your perspective
• 9:52
  SPEAKER_01: and from the perspective of the number that we're sharing?
• 9:55
  SPEAKER_00: I think to the extent of the mandate that I had, we did our best myself and the entire team.
• 10:00
  SPEAKER_00: Our work is not done because now we're on the last phase,
• 10:02
  SPEAKER_00: which is now distributing and the realization of the returns.
• 10:06
  SPEAKER_00: And that is now what Thomas Omondi,
• 10:08
  SPEAKER_00: Fred Moremi,
• 10:09
  SPEAKER_00: Rispa and the rest of So my colleagues will carry on with that agenda
• 10:12
  SPEAKER_00: and I'll continue to support them as a shareholder of the company.
• 10:32
  SPEAKER_01: Speak about the transition now to NIF then,
• 10:35
  SPEAKER_01: was this transition something you'd planned yourself or did it come up as
• 10:38
  SPEAKER_01: an opportunity that where you thought, okay, I can best sell my country.
• 10:41
  SPEAKER_01: And then for most people, they prefer to stick to the private sector for most of their lives.
• 10:46
  SPEAKER_01: You're switching to the public sector now where it's a bit more,
• 10:49
  SPEAKER_01: I mean, court orders flying left, right and center as you've seen so far.
• 10:52
  SPEAKER_01: What do you make of that transition so far?
• 10:54
  SPEAKER_00: First, let me deal with the succession itself.
• 10:56
  SPEAKER_00: We've been working on this succession, you may not know, since 2018.
• 11:01
  SPEAKER_00: Because the recovery is way back in 2017 was a key man risk with Dr. Chris Kirby and myself.
• 11:06
  SPEAKER_00: So we've been working on it for a long time.
• 11:08
  SPEAKER_00: What did we do?
• 11:09
  SPEAKER_00: One is we restructured the organization and made it a highly devolved organization.
• 11:14
  SPEAKER_00: So every portfolio company has its own PO and board.
• 11:18
  SPEAKER_00: And we shifted the parenting model from a hands-on model to one
• 11:22
  SPEAKER_00: where we provide strategic guidance.
• 11:24
  SPEAKER_00: So you'd be surprised.
• 11:25
  SPEAKER_00: Do you know how many staff actually sitting at a group company?
• 11:29
  SPEAKER_00: Take a guess.
• 11:30
  SPEAKER_00: 30?
• 11:31
  SPEAKER_00: No, it's a group company four.
• 11:33
  SPEAKER_00: So it's my friends, my PA, my driver, and one investment associate.
• 11:36
  SPEAKER_00: Everyone else is sitting in a portfolio company with an MD.
• 11:39
  SPEAKER_00: And that was to make the succession easy.
• 11:41
  SPEAKER_00: Number two is the way we actually run the company.
• 11:44
  SPEAKER_00: We have a team that does monthly portfolio reviews.
• 11:48
  SPEAKER_00: And this was actually been chaired by Thomas for the last six years.
• 11:51
  SPEAKER_00: And some of them by Fred, some of them by Rispa.
• 11:53
  SPEAKER_00: That was to make sure everybody understands what is going on.
• 11:57
  SPEAKER_00: Number three, just reducing complexity of the business.
• 11:59
  SPEAKER_00: All those things are meant to deal with this issue of human risk.
• 12:02
  SPEAKER_00: And in regard to this particular matter,
• 12:05
  SPEAKER_00: when I joined the board and I thought, look,
• 12:07
  SPEAKER_00: I can add more value here,
• 12:09
  SPEAKER_00: I did have a discussion with my board that I would be applying for this role.
• 12:13
  SPEAKER_00: And in the event I get appointed by the board, I would be leaving.
• 12:16
  SPEAKER_00: And so we began working on that possibility as soon as this role was advertised.
• 12:21
  SPEAKER_00: Just in the event, I did discuss it with myself.
• 12:24
  SPEAKER_00: Senior management colleagues, who should take over, should I leave?
• 12:27
  SPEAKER_00: They did think that Thomas was best suited.
• 12:29
  SPEAKER_00: So something we worked on.
• 12:31
  SPEAKER_00: And when it was confirmed on Monday,
• 12:33
  SPEAKER_00: I did speak actually to most of the key shareholders,
• 12:36
  SPEAKER_00: because I know them, at least the top 10, just the ones who account for about 70%.
• 12:41
  SPEAKER_00: And that's why maybe you've seen the share price moving up.
• 12:43
  SPEAKER_00: So that's how we handled the succession.
• 12:45
  SPEAKER_00: In terms of the ship from Centum to NIF,
• 12:47
  SPEAKER_00: when I read the app,
• 12:48
  SPEAKER_00: so just the ambition of what was possible,
• 12:51
  SPEAKER_00: I thought I could serve at a larger scale.
• 12:53
  SPEAKER_00: I've scaled up.
• 12:54
  SPEAKER_00: So the court cases, that's normal that you've experienced.
• 13:06
  SPEAKER_00: You have compacted and resilience to deal with that.
• 13:09
  SPEAKER_00: But I thought I could add value there.
• 13:10
  SPEAKER_00: And so that's why I made a decision to make the switch and serve in
• 13:14
  SPEAKER_00: a different capacity where I would have great associative impact.
• 13:18
  SPEAKER_01: Perhaps a small issue that was there with the transition
• 13:20
  SPEAKER_01: that you appointed director first and now you appointed CEO.
• 13:24
  SPEAKER_01: Did you participate as director in the selection?
• 13:26
  SPEAKER_01: It's possible if you can't do that.
• 13:28
  SPEAKER_00: So the way the NIF app is structured,
• 13:29
  SPEAKER_00: because I ran to the app carefully,
• 13:31
  SPEAKER_00: initially I thought I was going to serve as a director,
• 13:33
  SPEAKER_00: then I got to understand it more carefully.
• 13:35
  SPEAKER_00: The app actually envisages a situation where a director becomes an employee of the fund.
• 13:41
  SPEAKER_00: And in fact,
• 13:41
  SPEAKER_00: it provides that should that happen,
• 13:43
  SPEAKER_00: you automatically see his To become an independent director.
• 13:46
  SPEAKER_00: So that is envisaged.
• 13:48
  SPEAKER_00: And it also expressly provides who is not qualified to be a CEO.
• 13:52
  SPEAKER_00: And these are largely politicians, members of parliament, etc.
• 13:56
  SPEAKER_00: So we've dealt with conflicts of interest many times.
• 13:58
  SPEAKER_00: So the thing is to disclose your conflict and excuse yourself from participating in the process.
• 14:03
  SPEAKER_00: And that's what I did.
• 14:04
  SPEAKER_01: Now tell us a bit about NIF.
• 14:06
  SPEAKER_01: What is the National Infrastructure Fund?
• 14:08
  SPEAKER_01: Give us a bird's idea and then we'll poke a few questions here and there on
• 14:12
  SPEAKER_01: the various parts of it.
• 14:13
  SPEAKER_01: So what's the vision of the National Infrastructure Fund?
• 14:17
  SPEAKER_00: So my point as the NIF founder CEO is to build a world-class development finance institution.
• 14:23
  SPEAKER_00: DFIs, for example, Development Bank of South Africa, Africa Finance Corporation, TDB Bank.
• 14:30
  SPEAKER_00: The shareholders are states.
• 14:33
  SPEAKER_00: They're not individuals.
• 14:34
  SPEAKER_00: And so what Kenya is building is a development finance institution
• 14:38
  SPEAKER_00: that It will mobilize capital for the development of national infrastructure.
• 14:43
  SPEAKER_00: The gap we are filling is the fiscal strain the country currently is.
• 14:48
  SPEAKER_00: As you may be aware,
• 14:49
  SPEAKER_00: we have very limited leeway within the budget as this
• 14:52
  SPEAKER_00: to finance commercial infrastructure on budget.
• 14:56
  SPEAKER_00: What that means is that commercial infrastructure has to be financed commercially.
• 15:01
  SPEAKER_00: And so the mandate of the NIF is four things.
• 15:04
  SPEAKER_00: One is to scale and accelerate development of national infrastructure.
• 15:08
  SPEAKER_00: The second is to crowd in private and non-traditional sources of capital
• 15:13
  SPEAKER_00: to national infrastructure.
• 15:15
  SPEAKER_00: The third is to reduce reliance on public sector debt,
• 15:18
  SPEAKER_00: which is not natural given where our budget is.
• 15:20
  SPEAKER_00: And the fourth is to enhance the national capacity to originate,
• 15:24
  SPEAKER_00: structure, and execute large and complex national infrastructure projects.
• 15:29
  SPEAKER_00: So that is the mandate of the institution and that is my mandate as a founder CEO.
• 15:34
  SPEAKER_00: So it is both to do that and also to build a solid development financial institution.
• 15:39
  SPEAKER_00: For those who are interested, I would encourage you to look at also the India.
• 15:43
  SPEAKER_00: India set up a few years ago,
• 15:44
  SPEAKER_00: the National Investment Infrastructure Fund,
• 15:47
  SPEAKER_00: very similar to the National Infrastructure Fund in Kenya.
• 15:50
  SPEAKER_00: And it has done a great job in catalyzing private sector capital,
• 15:54
  SPEAKER_00: both domestically and globally, to addressing their infrastructural needs.
• 15:59
  SPEAKER_01: So that is what NIF is.
• 16:01
  SPEAKER_01: There are some people who say that such a fund shouldn't exist in a country
• 16:04
  SPEAKER_01: where we are struggling with debt repayments alone,
• 16:06
  SPEAKER_01: and that why should we finance assets when,
• 16:08
  SPEAKER_01: first of all, our debt has piled up to sky high levels.
• 16:12
  SPEAKER_01: Shouldn't you use those funds to offset the debt first so that you can be debt free
• 16:15
  SPEAKER_01: to be able to grow?
• 16:16
  SPEAKER_01: What would you say about those kind of comments against the existence of the fund?
• 16:20
  SPEAKER_00: Look, even if we used this money to pay the debt,
• 16:23
  SPEAKER_00: it would only pay 3% of national debt, if that, maybe even 2%.
• 16:27
  SPEAKER_00: So the 340 billion or 300 billion that is there as a percentage of national debt is about 3%.
• 16:33
  SPEAKER_00: So it would barely move the needy.
• 16:34
  SPEAKER_00: It should be a few months of interest.
• 16:36
  SPEAKER_00: So would it make a difference?
• 16:38
  SPEAKER_00: It will not make a difference.
• 16:39
  SPEAKER_00: Number two,
• 16:40
  SPEAKER_00: when in this situation,
• 16:41
  SPEAKER_00: what my view is that you need to enhance the productive capacity of the country so
• 16:44
  SPEAKER_00: that you can increase its start generation capacity.
• 16:47
  SPEAKER_00: For example,
• 16:48
  SPEAKER_00: if you have a mortgage of $50,000 and you're struggling to pay it,
• 16:51
  SPEAKER_00: the solution is to find a way of increasing your income.
• 16:53
  SPEAKER_00: Now, for me,
• 16:54
  SPEAKER_00: I have a mental formula of what are the inputs of productive capacity,
• 16:58
  SPEAKER_00: and all of five need to be there.
• 17:00
  SPEAKER_00: One is human capital,
• 17:01
  SPEAKER_00: two is financial capital,
• 17:02
  SPEAKER_00: rule of law, technology and innovation, and the fifth is infrastructure.
• 17:06
  SPEAKER_00: If you don't have infrastructure, you cannot be competitive.
• 17:08
  SPEAKER_00: If you don't have infrastructure in power,
• 17:11
  SPEAKER_00: in transport and logistics, in ICT,
• 17:14
  SPEAKER_00: any manufacturing or service delivery done in
• 17:16
  SPEAKER_00: that particular economy will not be competitive.
• 17:18
  SPEAKER_00: So what the National Infrastructure Fund is going to display a critical role in one
• 17:22
  SPEAKER_00: of these pillars of enhancing the productive capability,
• 17:24
  SPEAKER_00: and that is to catalyze the rest of the private sector.
• 17:27
  SPEAKER_00: So then you can enhance the tax capacity of the country because the debt is there.
• 17:33
  SPEAKER_00: You're not going to restructure.
• 17:34
  SPEAKER_00: You can't afford to default on it.
• 17:35
  SPEAKER_00: You have to pay it.
• 17:36
  SPEAKER_00: So NIF is playing a role in expanding the sources of funding by enhancing
• 17:42
  SPEAKER_00: the competitive capabilities of the nation.
• 17:46
  SPEAKER_01: And how is the crowding in supposed to work here?
• 17:48
  SPEAKER_01: I take it from us getting the seed fund for the project.
• 17:51
  SPEAKER_01: Where is the money coming from?
• 17:52
  SPEAKER_01: And then how does it flow towards you crowding in more capital?
• 17:56
  SPEAKER_00: Thank you for that question.
• 17:57
  SPEAKER_00: So look,
• 17:58
  SPEAKER_00: you have infrastructural needs,
• 18:00
  SPEAKER_00: then you have a project, then you have an investable asset.
• 18:02
  SPEAKER_00: The way that NIF act on the investment policy statement envisages is that
• 18:07
  SPEAKER_00: for each project you'll have a special purpose vehicle.
• 18:11
  SPEAKER_00: The IPS provides,
• 18:12
  SPEAKER_00: IPS stands for investment policy statement,
• 18:15
  SPEAKER_00: that each project will borrow a minimum of 3% of its project requirements.
• 18:21
  SPEAKER_00: Okay.
• 18:22
  SPEAKER_00: That debt is part of the crowding in.
• 18:24
  SPEAKER_00: And that debt is non-recourse.
• 18:26
  SPEAKER_00: It is debt that is not recourse to NIF and without recourse to the government of Kenya.
• 18:31
  SPEAKER_00: And 40% maximum would be their equity.
• 18:34
  SPEAKER_00: So on that basis alone, for every 40 shillings, you've crowded in 100.
• 18:38
  SPEAKER_00: Are we together up to the Eric?
• 18:40
  SPEAKER_01: 100, I thought that's 60 then.
• 18:42
  SPEAKER_01: 40, 60.
• 18:43
  SPEAKER_00: 40, 60.
• 18:44
  SPEAKER_00: But remember, the project cost is 100.
• 18:46
  SPEAKER_00: 40 plus 60 is 100, correct?
• 18:48
  SPEAKER_00: Yes.
• 18:48
  SPEAKER_00: So it means,
• 18:49
  SPEAKER_00: worst case,
• 18:50
  SPEAKER_00: you've put in 40 shillings of equity to mobilize the 100 shillings, correct?
• 18:55
  SPEAKER_00: Yes, yes, yes.
• 18:56
  SPEAKER_00: So that's a ratio of 1 is to 5.
• 18:58
  SPEAKER_00: And our key scenario, no, 2 is to 5.
• 19:02
  SPEAKER_00: Yes.
• 19:03
  SPEAKER_00: I don't lose anyone.
• 19:04
  SPEAKER_00: So I'm just going deliberately slowly.
• 19:06
  SPEAKER_00: Now,
• 19:06
  SPEAKER_00: if you're able to bring in other equity investors with you to co-invest with you,
• 19:11
  SPEAKER_00: it means that this 40 shillings, it is not just NIF that will provide it.
• 19:16
  SPEAKER_00: You'll come in alongside other investors.
• 19:19
  SPEAKER_01: So the 40, you're also seeking equity partners there.
• 19:22
  SPEAKER_00: 40, you're also seeking equity partners.
• 19:24
  SPEAKER_00: Those who are following encourage you to get the National Infrastructure Fund Act.
• 19:28
  SPEAKER_00: Read section four of the Act.
• 19:29
  SPEAKER_00: It sets out the purposes of the Act.
• 19:31
  SPEAKER_00: Section 4B provides that we are required to catalyze private
• 19:35
  SPEAKER_00: and non-traditional sources of capital.
• 19:37
  SPEAKER_00: That private and non-traditional source of capital is coming at the equity trench.
• 19:42
  SPEAKER_00: Why we've not had a lot of this capital flowing into infrastructure before?
• 19:45
  SPEAKER_00: One, obviously national infrastructure was done on the budget.
• 19:48
  SPEAKER_00: Number two,
• 19:49
  SPEAKER_00: some of it was done by foreign investors,
• 19:52
  SPEAKER_00: meaning that this private sector capital and this debt was mobilized overseas,
• 19:58
  SPEAKER_00: but the tolls were local.
• 20:00
  SPEAKER_00: So the capital formation was happening outside.
• 20:02
  SPEAKER_00: And the repatriation was happening from Kenya.
• 20:04
  SPEAKER_00: For example, if you look at the expressway, let's assume they are private investors.
• 20:08
  SPEAKER_00: Those investors are not in Kenya, but you are paying the tolls on that particular road.
• 20:13
  SPEAKER_00: So part of the role of NIF is also structuring projects to enable other investors
• 20:20
  SPEAKER_00: to invest in those projects.
• 20:22
  SPEAKER_00: And our focus is to start first focus on domestic investors.
• 20:26
  SPEAKER_00: That's why I'm on this call to speak about what we're doing.
• 20:29
  SPEAKER_00: That's why last week I was at the Africa Capital Week.
• 20:32
  SPEAKER_00: To speak to pension funds,
• 20:34
  SPEAKER_00: relative investment schemes,
• 20:35
  SPEAKER_00: and that's why even tomorrow I'll be meeting different groups
• 20:38
  SPEAKER_00: of pension fund investors to understand how they can come in.
• 20:41
  SPEAKER_00: We're trying to catalyze this 40%.
• 20:43
  SPEAKER_01: So if I get you right,
• 20:44
  SPEAKER_01: then your main focus is to get local funds to co-invest to the government
• 20:49
  SPEAKER_01: in strategic professionals.
• 20:51
  SPEAKER_00: All investors, local and foreign.
• 20:53
  SPEAKER_00: So we're engaging all of them, local and foreign.
• 20:56
  SPEAKER_00: The good thing, a lot of the local investors have themselves expressed significant interest.
• 21:01
  SPEAKER_00: To co-invest alongside NIF.
• 21:04
  SPEAKER_00: So for example, I'm attending a meeting tomorrow which NIF has not organized.
• 21:07
  SPEAKER_00: That's been organized by a group of pension fund investors who have invited NIF
• 21:13
  SPEAKER_00: to see how they can co-invest.
• 21:15
  SPEAKER_00: This morning,
• 21:16
  SPEAKER_00: I was on a call with another group of international investors who want
• 21:19
  SPEAKER_00: to see how they can create an infrastructure fund that can co-invest alongside NIF.
• 21:24
  SPEAKER_00: As I was telling a friend of mine this evening,
• 21:25
  SPEAKER_00: our infrastructure needs are so significant that we need everybody's help.
• 21:30
  SPEAKER_00: Just organize yourself and create a Mwango infrastructure fund
• 21:34
  SPEAKER_00: and mobilize some capital and co-invest with NIH.
• 21:37
  SPEAKER_01: So we bring in 60% and you bring in 40%, right?
• 21:41
  SPEAKER_00: 40%.
• 21:42
  SPEAKER_00: The 60% comes from debt, yeah.
• 21:44
  SPEAKER_00: 60% is senior debt.
• 21:45
  SPEAKER_00: So this is coming from the DFIs and the commercial banks.
• 21:49
  SPEAKER_01: The projects that you're going to be investing in,
• 21:51
  SPEAKER_01: how do you determine which projects are these that you want
• 21:53
  SPEAKER_01: to invest alongside million people?
• 21:55
  SPEAKER_00: Okay.
• 21:56
  SPEAKER_00: Good question.
• 21:56
  SPEAKER_00: So let's start with the sectors.
• 21:58
  SPEAKER_00: So the Act had identified certain sectors,
• 22:00
  SPEAKER_00: which we refined further in the investment policy statement.
• 22:04
  SPEAKER_00: So the sectors are five and these are essential sectors for economic development.
• 22:09
  SPEAKER_00: The first one is energy.
• 22:10
  SPEAKER_00: So within energy,
• 22:11
  SPEAKER_00: you have power generation,
• 22:13
  SPEAKER_00: transmission of power, distribution, power storage solutions.
• 22:17
  SPEAKER_00: Energy also includes petroleum, refineries, you know, distribution lines, pipelines, etc.
• 22:22
  SPEAKER_00: That is energy.
• 22:23
  SPEAKER_00: The second one is transport and logistics.
• 22:25
  SPEAKER_00: Transport and logistics includes airports.
• 22:29
  SPEAKER_00: That is largely what is in transport and logistics.
• 22:32
  SPEAKER_00: Then you have ICT infrastructure.
• 22:34
  SPEAKER_00: This is satellite, fiber, and any other ICT-related infrastructure.
• 22:39
  SPEAKER_00: So if you're thinking about the productive ecosystem, those are the best.
• 22:43
  SPEAKER_00: And then you have agriculture, life-scale agriculture, and livestock development.
• 22:49
  SPEAKER_00: That is because of the percentage that food constitutes of our CPI,
• 22:54
  SPEAKER_00: Consumer Price Index, to reduce inflation.
• 22:56
  SPEAKER_00: So these are the five sectors.
• 22:57
  SPEAKER_00: So the projects who need to be in these five sectors, they need to have a national impact.
• 23:02
  SPEAKER_00: So these are not small private projects or regional projects.
• 23:06
  SPEAKER_00: They are projects of a national nature.
• 23:08
  SPEAKER_00: For example,
• 23:09
  SPEAKER_00: Some of the projects that we are looking at in the pipeline include
• 23:12
  SPEAKER_00: the Jomo Kenyatta International Airport, the Port of Mombasa.
• 23:16
  SPEAKER_00: These are projects of a national significance.
• 23:19
  SPEAKER_00: The first test, you need to be commercially viable.
• 23:22
  SPEAKER_00: The definition of commercial viability is ability
• 23:25
  SPEAKER_00: to carry 60% non-recourse debt based on market revenues.
• 23:29
  SPEAKER_00: Or on equity,
• 23:30
  SPEAKER_00: because you have to crowd in equity,
• 23:32
  SPEAKER_00: they should be able to generate a market rate of
• 23:35
  SPEAKER_00: So that's what commercial viability.
• 23:37
  SPEAKER_00: Once you go beyond commercial viability, then it should be technically viable.
• 23:40
  SPEAKER_00: Then there should be some social economic impact.
• 23:42
  SPEAKER_00: If you read the Act, read Section 32 and Section 33 of the Act.
• 23:46
  SPEAKER_00: In terms of the toiling,
• 23:47
  SPEAKER_00: which was feedback from Parliament,
• 23:49
  SPEAKER_00: because the IPS There's a question of how many bankable projects are there in Kenya?
• 23:52
  SPEAKER_00: That is now what we are meant to do.
• 23:54
  SPEAKER_00: With the cities, your infrastructure needs.
• 23:56
  SPEAKER_00: I need an airport.
• 23:56
  SPEAKER_00: I need a road.
• 23:57
  SPEAKER_00: I need a port.
• 23:58
  SPEAKER_00: Then you have a project.
• 23:59
  SPEAKER_00: Then you make it an investable asset.
• 24:19
  SPEAKER_00: So part of the role of the NIF is to turn all these infrastructure needs
• 24:24
  SPEAKER_00: into projects and ultimately into investable assets.
• 24:28
  SPEAKER_00: So far, that's what we've been doing the last two months as board members is working
• 24:32
  SPEAKER_00: with different project promoters to structure the projects in a way
• 24:36
  SPEAKER_00: that they can be investable.
• 24:38
  SPEAKER_00: So far, the feedback is very encouraging.
• 24:41
  SPEAKER_00: A lot of this project with effort and whatever work we're doing,
• 24:44
  SPEAKER_00: I think we can end up with investable assets.
• 24:46
  SPEAKER_01: And so far,
• 24:47
  SPEAKER_01: there are some priority projects we've already started working on as a fast kind
• 24:52
  SPEAKER_01: of test in terms of the
• 24:53
  SPEAKER_00: availability of the project.
• 24:55
  SPEAKER_00: The current pipeline, the one that is farthest ahead is the Jomo Kenyatta International Airport.
• 25:01
  SPEAKER_00: The Jomokineta International Airport has a very limited capacity.
• 25:05
  SPEAKER_00: In fact, it's operating well above its desired capacity.
• 25:08
  SPEAKER_00: And that's why you see all these congestions at the airport.
• 25:11
  SPEAKER_00: The airport is very critical for the economy of the country,
• 25:14
  SPEAKER_00: both from tourism, we are a service economy, we are a transit hub.
• 25:18
  SPEAKER_00: So that's one of our initial projects.
• 25:20
  SPEAKER_00: It's extremely viable.
• 25:22
  SPEAKER_00: And in fact,
• 25:23
  SPEAKER_00: from a debt perspective,
• 25:24
  SPEAKER_00: I think the initial market read is that it's probably even oversubscribed from
• 25:28
  SPEAKER_00: a debt perspective.
• 25:29
  SPEAKER_00: So that's the project we've made more significant progress on in developing.
• 25:33
  SPEAKER_01: If you look at it in terms of the fund itself,
• 25:35
  SPEAKER_01: I think you'd spoken last week a little bit about that,
• 25:38
  SPEAKER_01: the initial capital coming in being seed capital and then a bit of it being invested
• 25:42
  SPEAKER_01: in treasury bills or bonds and stuff like that.
• 25:44
  SPEAKER_01: Could you walk us through the thinking around that in specific terms?
• 25:48
  SPEAKER_01: Can we be able to maybe pop a few questions here and there?
• 25:50
  SPEAKER_00: Okay.
• 25:51
  SPEAKER_00: So Eric, just for your context, you know, we came in as directors in July.
• 25:55
  SPEAKER_00: The NIF Act was passed in March.
• 25:58
  SPEAKER_00: And frankly speaking,
• 25:59
  SPEAKER_00: the first time I read this Act was in June when I was applying to be a director of
• 26:04
  SPEAKER_00: the National Infrastructure Fund.
• 26:05
  SPEAKER_00: So our investment strategy is within the constraints of the Act.
• 26:09
  SPEAKER_00: I've seen a few people ask me why investing in bonds, why not in these?
• 26:13
  SPEAKER_00: So it's not only our choice.
• 26:15
  SPEAKER_00: You are operating within the confines of the National Infrastructure Fund Act.
• 26:19
  SPEAKER_00: So Section 43 of the Act provides that surplus assets of the fund should be invested
• 26:24
  SPEAKER_00: in government securities.
• 26:26
  SPEAKER_00: In fact,
• 26:26
  SPEAKER_00: a friend of mine sent me an article about 1MDB and maybe to avoid
• 26:30
  SPEAKER_00: that 1MDB situation because the money does not leave the country.
• 26:34
  SPEAKER_00: Now, what the board then has used in developing of the investment strategy.
• 26:39
  SPEAKER_00: And the idea is that if you have about 340 billion and you invest at 12 and
• 26:42
  SPEAKER_00: a half percent, you'll get about 42 billion.
• 26:45
  SPEAKER_00: You can check my math or roughly about 40 billion shillings.
• 26:48
  SPEAKER_00: With 40 billion shillings as equity capital,
• 26:51
  SPEAKER_00: assuming you crowd in another 40 billion of And that is sizable because
• 26:55
  SPEAKER_00: the airport is about 130 billion shillings.
• 26:57
  SPEAKER_00: So you can implement two or three such projects every year.
• 27:20
  SPEAKER_00: And therefore turn what is a finite asset into a permanent asset.
• 27:25
  SPEAKER_00: What is interesting is that post-construction in the IPF is also meant to have
• 27:29
  SPEAKER_00: a clear exit point.
• 27:30
  SPEAKER_00: So you can exit these assets into the stock market
• 27:33
  SPEAKER_00: because these are natural monopolies,
• 27:35
  SPEAKER_00: which are the sort of earning long-term profits.
• 27:38
  SPEAKER_00: So you can come back and exit them and recycle your capital and add
• 27:42
  SPEAKER_00: to your permanent capital fund.
• 27:44
  SPEAKER_00: So instead of it being a temporary fund because the sources of
• 27:47
  SPEAKER_00: the funding are temporary or rather they are finite assets,
• 27:50
  SPEAKER_00: it then becomes a kind of permanent capital vehicle that can grow over time.
• 27:55
  SPEAKER_00: I'll try to simplify it as much as I can.
• 27:57
  SPEAKER_00: I hope that explanation of clear, Eric.
• 27:59
  SPEAKER_01: Yes, it does.
• 28:00
  SPEAKER_01: But the key question then is,
• 28:01
  SPEAKER_01: if you're going to invest in treasury bills and bonds,
• 28:04
  SPEAKER_01: so to speak,
• 28:04
  SPEAKER_01: isn't that like you're crowding out a bit of the same investors who are coming to
• 28:08
  SPEAKER_01: the markets to also invest in the same assets?
• 28:11
  SPEAKER_01: Isn't that basically government competing with the private sector now for
• 28:14
  SPEAKER_01: the same kind of returns from treasuries?
• 28:16
  SPEAKER_00: Remember, that's why it took a long time to tell you that that is what the Act provides.
• 28:21
  SPEAKER_00: And I also took time to tell you we found the Act like that.
• 28:23
  SPEAKER_00: So we are working within the confines of the Act.
• 28:26
  SPEAKER_00: I hope that has answered the question.
• 28:28
  SPEAKER_01: The crop may still exist though.
• 28:30
  SPEAKER_00: How do you mean you're competing?
• 28:31
  SPEAKER_00: Just explain again your logic.
• 28:32
  SPEAKER_01: So the NIF has funds and you're going to put them in bonds, right?
• 28:36
  SPEAKER_01: In government bonds, right?
• 28:38
  SPEAKER_01: Yeah, but if you put them
• 28:39
  SPEAKER_00: in bonds,
• 28:39
  SPEAKER_00: the amount of money the government was planning to borrow was fixed.
• 28:43
  SPEAKER_00: So like easier their borrowing program was 900 billion, correct?
• 28:47
  SPEAKER_00: So it was reduced because of NIF.
• 28:50
  SPEAKER_01: It simply means commercial
• 28:50
  SPEAKER_00: banks now have to learn to do.
• 28:53
  SPEAKER_00: Is it a way of monetary policy then?
• 28:55
  SPEAKER_00: It's not a monetary policy issue because it's a union of the negotiated act.
• 28:59
  SPEAKER_00: First, it is illogical to keep the money, not earning anything.
• 29:03
  SPEAKER_00: It's illogical to keep the cash.
• 29:04
  SPEAKER_00: The illogical thing is to invest in their divisible asset.
• 29:07
  SPEAKER_00: Okay?
• 29:08
  SPEAKER_00: In fact,
• 29:09
  SPEAKER_00: it is availing the equivalent amount of money into the private sector
• 29:13
  SPEAKER_00: because this slot would have been taken up by banks and probably pension funds.
• 29:17
  SPEAKER_00: So these pension funds,
• 29:18
  SPEAKER_00: when they come to the primary auction,
• 29:20
  SPEAKER_00: The amount of borrowing that would have been available from
• 29:22
  SPEAKER_00: the primary market this year is going to reduce by an equivalent amount.
• 29:27
  SPEAKER_01: In an industry where the government is trying to push banks to lend to people.
• 29:30
  SPEAKER_00: No, I don't think that's the case because I don't remember the intention of government.
• 29:34
  SPEAKER_00: You know,
• 29:34
  SPEAKER_00: when you go to Parliamentary Act,
• 29:36
  SPEAKER_00: it gets so many amendments that you end up with an act that operates.
• 29:40
  SPEAKER_00: So I don't think somebody sent anybody here and said,
• 29:43
  SPEAKER_00: If it was me,
• 29:43
  SPEAKER_00: I would have said,
• 29:44
  SPEAKER_00: open it up for us to invest in even other sovereign securities that meet
• 29:48
  SPEAKER_00: a certain credit rating.
• 29:50
  SPEAKER_00: That is not in the act today.
• 29:52
  SPEAKER_00: You can't do that.
• 29:53
  SPEAKER_00: It's sort of like, when I came in a CEO center, I said, but where can't you raise equity?
• 29:57
  SPEAKER_00: This is law.
• 29:58
  SPEAKER_00: That is not your mandate.
• 29:59
  SPEAKER_00: That makes sense.
• 30:00
  SPEAKER_00: But then will you hold them for the year?
• 30:03
  SPEAKER_00: Because you're assuming you're going to get 40 billion at the end of the year.
• 30:06
  SPEAKER_00: So will you hold for a year?
• 30:07
  SPEAKER_00: That's a good question.
• 30:23
  SPEAKER_00: How much can we really deploy?
• 30:24
  SPEAKER_00: If you look at the development budget of the government,
• 30:27
  SPEAKER_00: it's about $600 billion, $400 billion to $600 billion.
• 30:30
  SPEAKER_00: So even if you want to deploy $400 billion,
• 30:33
  SPEAKER_00: $300 billion, 30% equities, 70% debt, bring in coertypes.
• 30:38
  SPEAKER_00: Investors with you, your income is enough.
• 30:40
  SPEAKER_00: Is it?
• 30:41
  SPEAKER_00: Because there's a project preparation period.
• 30:43
  SPEAKER_00: And remember, this is assuming you develop the project and disburs all the funds in that year.
• 30:48
  SPEAKER_00: And that's very difficult because alone,
• 30:50
  SPEAKER_00: it's very hard to disburs 300 billion because like the airport project,
• 30:54
  SPEAKER_00: which requires a billion, has a three-year construction period.
• 30:57
  SPEAKER_00: So this means actually a lot of money.
• 30:59
  SPEAKER_00: You know, it's a total of 300 billion disbursed.
• 31:02
  SPEAKER_00: Think about it over three years.
• 31:03
  SPEAKER_00: It's about 900 billion, almost a trillion, sort of dispersed.
• 31:07
  SPEAKER_00: So it's a lot of projects because also you have to take into account
• 31:11
  SPEAKER_00: the project development period.
• 31:12
  SPEAKER_00: So we have quite a bit of leeway to do quite a lot.
• 31:15
  SPEAKER_00: So at least as far as anything is commercially viable,
• 31:18
  SPEAKER_00: projects that are commercially viable,
• 31:20
  SPEAKER_00: I think we have enough firepower to deal with those projects.
• 31:23
  SPEAKER_01: A question that perhaps we should have asked you at the beginning was about
• 31:26
  SPEAKER_01: when you're setting up NIF as a fund as it is,
• 31:29
  SPEAKER_01: you are traditionally appointed,
• 31:31
  SPEAKER_01: so to speak, and there's a presidential infrastructure agenda.
• 31:34
  SPEAKER_01: And more often than not, most of these projects, there is a political side.
• 31:38
  SPEAKER_01: How would you shield an NIF from the fact that some of these projects may need
• 31:43
  SPEAKER_01: to be maybe done within a certain specific period of time,
• 31:46
  SPEAKER_01: perhaps to fit the presidential agenda or the political agenda of the time?
• 31:49
  SPEAKER_01: How would you shield NIF from that kind of exposure as CEO?
• 31:54
  SPEAKER_00: Thank you very much for that question.
• 31:55
  SPEAKER_00: Actually, it's not really for CEO.
• 31:57
  SPEAKER_00: Let's first start with what you've done in the policy and what has been done in
• 32:01
  SPEAKER_00: the Act to deal with that issue.
• 32:02
  SPEAKER_00: At the IPS level,
• 32:04
  SPEAKER_00: as I told you,
• 32:05
  SPEAKER_00: a minimum of 60% of the project cost has to be covered by non-recourse debt,
• 32:11
  SPEAKER_00: which means...
• 32:13
  SPEAKER_00: More than 50% of the capital is commercial.
• 32:15
  SPEAKER_00: Okay.
• 32:15
  SPEAKER_00: So even if it's a project with the strongest commercial political support,
• 32:20
  SPEAKER_00: majority of the money is not coming from NIF.
• 32:22
  SPEAKER_00: Majority of the money has to come from the debt market.
• 32:25
  SPEAKER_00: So that means that no matter what...
• 32:27
  SPEAKER_00: Now,
• 32:32
  SPEAKER_00: Section 32 of the Act requires us to have commercial viability.
• 32:36
  SPEAKER_00: Commercial viability means you should have sight of the 60% minimum of land because of debt.
• 32:41
  SPEAKER_00: So if a project has political support and it's not commercially viable,
• 32:45
  SPEAKER_00: it will fail at that level.
• 32:46
  SPEAKER_00: That's one of the mechanisms that are being provided.
• 32:49
  SPEAKER_00: The second mechanism is the majority of the board members are independent board members.
• 32:54
  SPEAKER_00: So the board of NIF is made up of four independent directors,
• 32:57
  SPEAKER_00: one CEO who is ex-official, who is also now independent.
• 33:00
  SPEAKER_00: So these are five and three appointees from government.
• 33:03
  SPEAKER_00: So the independent directors are more than the government directors.
• 33:07
  SPEAKER_00: And the board itself is not subject to direction by the governing council.
• 33:11
  SPEAKER_00: That is also in the act.
• 33:12
  SPEAKER_00: That's where the chair sits.
• 33:14
  SPEAKER_00: So the board is not subject to direction by anybody and it's largely made up
• 33:19
  SPEAKER_00: of independent directors, very respectable people.
• 33:22
  SPEAKER_00: You have people like Chris Maranga,
• 33:23
  SPEAKER_00: the Regional Director for Akingan Fund,
• 33:25
  SPEAKER_00: Fahima Zain,
• 33:26
  SPEAKER_00: who many of you know,
• 33:27
  SPEAKER_00: the former CIO at Genafrica, Latoya Una, an engineer based in Mombasa.
• 33:32
  SPEAKER_00: We have a vacancy now for another independent director.
• 33:34
  SPEAKER_00: How will we be feeling from the ones who applied after we appointed?
• 33:37
  SPEAKER_00: So those are the sheets.
• 33:38
  SPEAKER_00: So it's largely independent.
• 33:40
  SPEAKER_00: Now, the point is the politicians have a role to play and they have two roles.
• 33:44
  SPEAKER_00: One is the people's need.
• 33:46
  SPEAKER_00: Sometimes it's expressed through the politicians.
• 33:49
  SPEAKER_00: Once it's expressed,
• 33:50
  SPEAKER_00: then the role of NIF is to see whether the project that solves that need is
• 33:54
  SPEAKER_00: an investable asset.
• 33:55
  SPEAKER_00: Second,
• 33:55
  SPEAKER_00: the critical role is that some of these projects may require political support
• 34:00
  SPEAKER_00: to implement.
• 34:00
  SPEAKER_00: For example, You want to implement a toll mode.
• 34:03
  SPEAKER_00: You need political support to establish whether the population that is going to use
• 34:07
  SPEAKER_00: that toll is able and willing to pay.
• 34:09
  SPEAKER_00: Everybody has a role to play.
• 34:11
  SPEAKER_00: Maybe that's why NIF got such bipartisan support because the Kenyan voter translates.
• 34:16
  SPEAKER_00: By the way, you've gotten $300 billion so far in terms of seed capital from the government.
• 34:21
  SPEAKER_00: Do you expect more?
• 34:38
  SPEAKER_00: The way the act is drafted is the NIF is funded from the process of privatization
• 34:43
  SPEAKER_00: and the privatization act was also amended to provide that the process
• 34:46
  SPEAKER_00: of privatization will not go to the consolidated fund but to
• 34:49
  SPEAKER_00: the national infrastructure fund.
• 34:50
  SPEAKER_00: So look, it's a way of government changing the form of the asset.
• 34:54
  SPEAKER_00: Thought of seeing if we exit an asset,
• 34:56
  SPEAKER_00: let us use it to reinvest as opposed to before,
• 34:58
  SPEAKER_00: which was if we sell an asset, let us spend the money.
• 35:01
  SPEAKER_00: Because if it goes to the consolidated fund,
• 35:03
  SPEAKER_00: Then it is spent on salaries and just the current expenditure.
• 35:06
  SPEAKER_00: So to your question,
• 35:07
  SPEAKER_00: if there's future privatization,
• 35:09
  SPEAKER_00: then automatically the process of those privatizations,
• 35:12
  SPEAKER_00: based on the law as is,
• 35:13
  SPEAKER_00: would then flow to the National Infrastructure Fund and form part of the capital,
• 35:18
  SPEAKER_00: and then that would increase what is available for investment.
• 35:21
  SPEAKER_01: We are not really losing an asset in privatization.
• 35:23
  SPEAKER_01: You are really converting the form of the asset.
• 35:26
  SPEAKER_01: So our future privatization will come through the process,
• 35:30
  SPEAKER_01: will come through the fund itself, right?
• 35:32
  SPEAKER_00: Yeah, and then the fund will put that money into other capital assets that the country needs.
• 35:36
  SPEAKER_00: Then they'll also exit and then pick cash.
• 35:38
  SPEAKER_00: So it gives you more dynamism in terms of your assets so that you shift
• 35:42
  SPEAKER_00: from one asset to a different kind of asset.
• 35:45
  SPEAKER_01: And then some key aspects perhaps of the IPS that you would want the people to be aware of.
• 35:50
  SPEAKER_01: Maybe take us a little bit through the investment policy statements.
• 35:52
  SPEAKER_01: Maybe the key things that stood out for you that you'd want to emphasize.
• 35:56
  SPEAKER_00: So the IPS has several sections.
• 35:59
  SPEAKER_00: I think the most critical section is the investment criteria.
• 36:03
  SPEAKER_00: Every proposed project should satisfy the minimum investment criteria,
• 36:06
  SPEAKER_00: which is demand validation and commercial feasibility, commercial viability.
• 36:11
  SPEAKER_00: I've asked me what about very important projects that are not commercially viable.
• 36:14
  SPEAKER_00: Those are provided to go to Treasury for funding.
• 36:16
  SPEAKER_00: It provides that issue your financial return.
• 36:18
  SPEAKER_00: There was an amendment to the APS in that respect.
• 36:21
  SPEAKER_00: Each investment should be required to demonstrate
• 36:23
  SPEAKER_00: a positive risk-adjusted expected equity result.
• 36:26
  SPEAKER_00: The Act Section 34 provides a mechanism for government to support a project
• 36:30
  SPEAKER_00: to get it to commercial viability.
• 36:31
  SPEAKER_00: That is called Minimum Commercial Viability Support.
• 36:46
  SPEAKER_00: The IPS covers the proposed or rather the target sectors, the five that I've described.
• 36:51
  SPEAKER_00: It deals with the treasury management.
• 36:53
  SPEAKER_00: It provides co-review that we shall monitor these IPS annually through
• 36:56
  SPEAKER_00: the annual business plan and it shall be valid for the next five years.
• 37:00
  SPEAKER_00: It then provides the monitoring and evaluation criteria,
• 37:03
  SPEAKER_00: which is financial performance, typically deployed, capital mobilized.
• 37:06
  SPEAKER_00: Portfolio quality and national development outcomes.
• 37:09
  SPEAKER_00: And then it has the policy parameters.
• 37:11
  SPEAKER_00: Debt capacity, 60%.
• 37:13
  SPEAKER_00: Minimum expected return.
• 37:14
  SPEAKER_00: It should be positive risk-adjusted return.
• 37:16
  SPEAKER_00: Meaning,
• 37:17
  SPEAKER_00: if you're investing for 10 years,
• 37:18
  SPEAKER_00: you should look at the risk-free rate and the risk premium.
• 37:21
  SPEAKER_00: So debt to an absolute minimum of 7%.
• 37:23
  SPEAKER_00: Maximum sector exposure, 40%.
• 37:25
  SPEAKER_00: However,
• 37:26
  SPEAKER_00: the board was driven by a parliament to adjust
• 37:28
  SPEAKER_00: on any documented portfolio economic rounds.
• 37:31
  SPEAKER_00: Maximum single project exposure is 20% of the fund's assets.
• 37:35
  SPEAKER_00: So that's what it covers.
• 37:36
  SPEAKER_01: We've spent almost an hour on this conversation.
• 37:38
  SPEAKER_01: Someone is asking,
• 37:39
  SPEAKER_01: are you willing to disclose your remuneration at NIF because the center was public?
• 37:46
  SPEAKER_01: Is that something you'd want?
• 37:48
  SPEAKER_01: Yes.
• 37:49
  SPEAKER_01: Yes, very happy to do so.
• 37:50
  SPEAKER_01: There are things I don't know.
• 37:52
  SPEAKER_01: I don't know what it will be.
• 37:53
  SPEAKER_01: And that's it.
• 37:54
  SPEAKER_01: How come?
• 37:54
  SPEAKER_01: How can you accept a role where you
• 37:55
  SPEAKER_00: don't know how much it will
• 37:56
  SPEAKER_01: be?
• 37:57
  SPEAKER_00: And find out along the way to be set by somebody, a body called PSC.
• 38:01
  SPEAKER_00: That's part of the role of the founder CEO is to come up with
• 38:03
  SPEAKER_00: the remuneration structures and the rest.
• 38:05
  SPEAKER_00: So I don't really know what it's going to be.
• 38:07
  SPEAKER_01: And then someone is also asking whether there are other competitors of yours
• 38:10
  SPEAKER_01: and what your pitch was to their board in terms of being CEO.
• 38:14
  SPEAKER_00: You, my other competitors work.
• 38:15
  SPEAKER_01: Yeah.
• 38:15
  SPEAKER_00: In the role of CEO?
• 38:17
  SPEAKER_00: I don't know because I did not participate in the recruitment process.
• 38:20
  SPEAKER_00: I don't know well supplied.
• 38:21
  SPEAKER_01: And then there's a sub fund you talked about leasing at the NSC.
• 38:24
  SPEAKER_01: Could you take us through the thinking around that?
• 38:26
  SPEAKER_01: Because you want to provide a bit of liquidity on some of the projects
• 38:28
  SPEAKER_01: that they can hold with the D-Rate that I do.
• 38:31
  SPEAKER_01: Yeah.
• 38:32
  SPEAKER_00: Yeah, Eric,
• 38:32
  SPEAKER_00: actually that was the question of how do we crowd the potential funds because of
• 38:36
  SPEAKER_00: the duration mismatch.
• 38:37
  SPEAKER_00: These projects tend to be long-term in nature.
• 38:40
  SPEAKER_00: And I was just sharing my thoughts of what we can develop and asking the audience
• 38:44
  SPEAKER_00: to co-create a solution.
• 38:46
  SPEAKER_00: And I was saying, look, we already have rooms for Development REITs.
• 38:49
  SPEAKER_00: Those rules for development REITs can be modified to create rules
• 38:53
  SPEAKER_00: for development infrastructure assets.
• 38:55
  SPEAKER_00: Because at least for the next five years, we'll not have income assets.
• 38:59
  SPEAKER_00: You know, the way you have a DREIT for the development part of the project and then an IREIT.
• 39:04
  SPEAKER_00: What we need now is a DREIT that will come in or
• 39:07
  SPEAKER_00: a development infrastructure trust vehicle that will come in
• 39:11
  SPEAKER_00: after project preparation fees to crowd in investors listed And
• 39:17
  SPEAKER_00: which would allow them to exit.
• 39:18
  SPEAKER_00: Because what investors require is liquidity.
• 39:21
  SPEAKER_00: And that would largely be a capital gain vehicle.
• 39:24
  SPEAKER_00: Because in that original phase,
• 39:25
  SPEAKER_00: when you might be earning about 14-15% return,
• 39:27
  SPEAKER_00: which means you're doubling your money every five years,
• 39:30
  SPEAKER_00: that is largely a capital gain increase.
• 39:32
  SPEAKER_00: That then would be able to be priced mark to market and can facilitate investors to come in.
• 39:37
  SPEAKER_00: Now,
• 39:37
  SPEAKER_00: there were various parties that gave submissions to parliament and one of them was
• 39:41
  SPEAKER_00: a capital markets authority and they did indicate
• 39:43
  SPEAKER_00: that they currently don't have rules.
• 39:45
  SPEAKER_00: So what our purpose to do is to meet with them to see how we can work through
• 39:49
  SPEAKER_00: with them and the NSE and also I am meeting different groups
• 39:54
  SPEAKER_00: of pension fund investors and other institutional investors to see what kind
• 39:57
  SPEAKER_00: of structures we can create.
• 39:59
  SPEAKER_00: Once you create the rules,
• 40:00
  SPEAKER_00: then anyone can create this kind of vehicle and they come in as
• 40:03
  SPEAKER_00: a co-investment vehicle alongside the NIF on specific projects of your choosing.
• 40:08
  SPEAKER_00: So that was one feature that I was proposing that would solve this kind of problem.
• 40:14
  SPEAKER_00: Now, these are the suggestions, always open to ideas of how then other parties can come in.
• 40:19
  SPEAKER_00: The advantage of co-investing with NIFs that you're coming in,
• 40:22
  SPEAKER_00: pari pasu, meaning on equal terms.
• 40:24
  SPEAKER_00: So whatever preferential terms NIF has gotten, then as a co-investor, You'd get to enjoy it.
• 40:30
  SPEAKER_00: And I think when I was looking at the National Investment and Infrastructure Fund
• 40:34
  SPEAKER_00: of India, that's what they've done.
• 40:35
  SPEAKER_00: They have created a series of those funds and those funds are asset specific.
• 40:39
  SPEAKER_00: So once a fund is fully deployed into specific assets,
• 40:42
  SPEAKER_00: then the next fund deploys into subsequent assets.
• 40:45
  SPEAKER_00: Eric, what do you think about the idea?
• 40:48
  SPEAKER_01: I think that the idea is good because I don't think Kenyans have had the opportunity
• 40:51
  SPEAKER_01: to invest directly in national assets.
• 40:53
  SPEAKER_01: I think it's a feasible thing to do in terms of raising capital and
• 40:57
  SPEAKER_01: the co-investing, so to speak.
• 40:59
  SPEAKER_01: But also because you also bear the risk of also assessing some of the assets.
• 41:02
  SPEAKER_01: So then I think people,
• 41:03
  SPEAKER_01: when they come in as common money,
• 41:05
  SPEAKER_01: then they have that assurance that you've already made a bit of assessment of some
• 41:08
  SPEAKER_01: of the projects that you're supposed to invest in.
• 41:10
  SPEAKER_01: So I think it's possible.
• 41:13
  SPEAKER_00: Yeah.
• 41:15
  SPEAKER_00: We did it with the IREIT.
• 41:17
  SPEAKER_00: And remember we discussed with you, this is an idea we have and we did it.
• 41:20
  SPEAKER_00: Remember to market it, was oversubscribed.
• 41:22
  SPEAKER_00: And then it gives you price discovery.
• 41:24
  SPEAKER_00: Because even when you come to the exit fees,
• 41:26
  SPEAKER_00: then you then create a national infrastructure investment trust,
• 41:29
  SPEAKER_00: which then buys mature assets and just distributes IREIT to investors.
• 41:33
  SPEAKER_01: The key challenge,
• 41:33
  SPEAKER_01: of course,
• 41:34
  SPEAKER_01: is shielding the entire institution that you're running from political interference
• 41:38
  SPEAKER_01: and definitely making sure that the capital preservation,
• 41:40
  SPEAKER_01: its front and back of mind as you lead such an institution.
• 41:44
  SPEAKER_01: And then, you know, the shareholders here, the general public.
• 41:46
  SPEAKER_01: So I think you'll be more hung in the court of public opinion,
• 41:49
  SPEAKER_01: not the private, the top 10 shareholders that you have.
• 41:51
  SPEAKER_01: So you have 54 million shareholders who want to make sure that you're held
• 41:55
  SPEAKER_01: to account, so to speak.
• 41:56
  SPEAKER_00: You raise an interesting point, the reporting mechanisms.
• 41:59
  SPEAKER_00: So the reporting mechanism is that the Board should report to
• 42:02
  SPEAKER_00: the Governing Council quarterly and the Chairman of the Governing Council is
• 42:07
  SPEAKER_00: the Cabinet Secretary of Treasury to report parliament semiannually.
• 42:10
  SPEAKER_00: So that is the reporting mechanism.
• 42:12
  SPEAKER_00: And you are right that in this particular Now,
• 42:17
  SPEAKER_00: we don't have the first category of shareholders.
• 42:18
  SPEAKER_00: We now have Kenyan as activists and that's the nature of this.
• 42:22
  SPEAKER_00: Now, everyone will have a view and we'll take their views
• 42:25
  SPEAKER_00: and that's why these documents are now going to be public.
• 42:27
  SPEAKER_00: The MPSAs and even the act.
• 42:29
  SPEAKER_01: And you have a tougher job perhaps of also breaking down which aspect of the NIF.
• 42:33
  SPEAKER_01: A key question that I had was when you think about the NIF,
• 42:36
  SPEAKER_01: I was just thinking of it as a portfolio of individual SPVs that you invested in,
• 42:41
  SPEAKER_01: or are you like a minority shareholder in several SPVs?
• 42:45
  SPEAKER_01: When you think about a fund of funds,
• 42:47
  SPEAKER_01: so to speak,
• 42:48
  SPEAKER_01: when you think about that,
• 42:49
  SPEAKER_01: if you want to break it down to an ordinary Kenyan, how do they think about the NIF?
• 42:52
  SPEAKER_01: It's a fund of funds, so to speak?
• 42:54
  SPEAKER_00: Actually, for me, I think a bit less.
• 42:56
  SPEAKER_00: The financial structure is the means to the end.
• 43:00
  SPEAKER_00: For me,
• 43:00
  SPEAKER_00: what made me actually want to do this job at NIH is just the impact it will have
• 43:04
  SPEAKER_00: on society around just enhancing the competitiveness of the entire country.
• 43:09
  SPEAKER_00: I've made this point before,
• 43:11
  SPEAKER_00: is that you can only do as well as your environment as a placeholder.
• 43:16
  SPEAKER_00: And if we are able to bring national infrastructure assets
• 43:20
  SPEAKER_00: that just improve competitiveness all around for everybody,
• 43:25
  SPEAKER_00: I think my job will be done.
• 43:27
  SPEAKER_00: The next phase of my career was to move from a single company to just dealing with
• 43:31
  SPEAKER_00: a broader ecosystem.
• 43:33
  SPEAKER_00: Now, the how of getting there, you'll have SPVs.
• 43:37
  SPEAKER_00: Each of these assets will sit into an SPV.
• 43:39
  SPEAKER_00: That SPV will have NIF as a shareholder.
• 43:41
  SPEAKER_00: It will have co-investment funds.
• 43:43
  SPEAKER_00: It will have debt.
• 43:44
  SPEAKER_00: It will go through a construction phase and then it will go into an exit phase and
• 43:47
  SPEAKER_00: then it will be in an operation office and will continuously recycle capital.
• 43:51
  SPEAKER_00: Why NIF has a competitive advantage is not in holding companies indefinitely.
• 43:55
  SPEAKER_00: It is in exiting them and preparing new ones for exit.
• 43:59
  SPEAKER_00: So Eric, prepare to ask a lot of questions around why we exited.
• 44:02
  SPEAKER_00: You have to exit because you have to recycle the capital.
• 44:05
  SPEAKER_00: So it's not meant to be a permanent capital vehicle.
• 44:08
  SPEAKER_01: I think you'll be once again on the firing line in terms of being asked
• 44:12
  SPEAKER_01: that you're selling crowned dual assets and not holding them at the MIF.
• 44:16
  SPEAKER_00: Do you know what I found interesting about that question is that all these crowned,
• 44:21
  SPEAKER_00: all of us collectively as shareholders agreed to selling.
• 44:23
  SPEAKER_00: That was the business model.
• 44:24
  SPEAKER_00: The focus is grow the entire asset base.
• 44:27
  SPEAKER_00: And so I think there's what shareholders of the company were doing and
• 44:30
  SPEAKER_00: then there's what outsiders saw as doing.
• 44:33
  SPEAKER_00: But perhaps not a realization that this was the collective will of the entire body
• 44:37
  SPEAKER_00: of the shareholders, yeah.
• 44:38
  SPEAKER_01: Maybe to give you a specific example,
• 44:40
  SPEAKER_01: the one JKA that you have in mind, the NIF will take up a 30% stake.
• 44:45
  SPEAKER_01: Is that what you have in mind?
• 44:46
  SPEAKER_01: Yes.
• 44:47
  SPEAKER_00: So the idea is of the total new structure of the financial model, 70% debt, 30% equity.
• 44:52
  SPEAKER_00: Now of this equity, we don't have to be a 100% equity investor.
• 44:56
  SPEAKER_00: Some of the co-investment funds can come alongside us.
• 44:58
  SPEAKER_00: The ideal position is that we end up at 30% of the 30.
• 45:02
  SPEAKER_00: You follow.
• 45:02
  SPEAKER_00: But originally we might be 100 and then we'll bring on board other investors.
• 45:05
  SPEAKER_00: But the ideal is you are 30 of the 30.
• 45:07
  SPEAKER_00: We don't have to build everything.
• 45:09
  SPEAKER_00: The statutory mandate is to also bring other investors along with you.
• 45:13
  SPEAKER_00: That's where this co-investment review comes into play.
• 45:16
  SPEAKER_01: Do you have a timeline for JKA1 specifically?
• 45:19
  SPEAKER_00: You know, for JKA, the contractor is on site.
• 45:21
  SPEAKER_00: It's viable.
• 45:22
  SPEAKER_00: So it's just not going through the documentation.
• 45:24
  SPEAKER_00: So it should be very soon.
• 45:25
  SPEAKER_00: I don't want to commit to a timeline because it's not only within our control.
• 45:28
  SPEAKER_01: And the risk there, there's FX, traffic, tariff risks and all that.
• 45:33
  SPEAKER_01: How are you thinking about one of those?
• 45:35
  SPEAKER_00: Traffic risk is won by the commercial investors.
• 45:38
  SPEAKER_00: That is a commercial risk.
• 45:40
  SPEAKER_00: The air passenger service revenue is already established.
• 45:44
  SPEAKER_00: The FX risk may not be there because unless you invest in cash,
• 45:48
  SPEAKER_00: because the revenue is in dollars.
• 45:50
  SPEAKER_00: So you will come up with a co-investment yoke that is in dollars, then there may be no FX risk.
• 45:55
  SPEAKER_00: The construction risk is won by the EPC contract.
• 45:58
  SPEAKER_01: And then you don't have timelines there.
• 46:00
  SPEAKER_01: Perhaps in your next quarterly brief, we'll get more information.
• 46:03
  SPEAKER_01: Someone is saying that you have a one to 10 target in terms of crowding in capital, right?
• 46:08
  SPEAKER_01: That's your one to 10, right?
• 46:10
  SPEAKER_01: That's a goal.
• 46:11
  SPEAKER_01: Someone is saying that the India's NIIF has never been able to do more than a 3X,
• 46:16
  SPEAKER_01: so like one to three.
• 46:17
  SPEAKER_01: Then he's asking whether one to 10 is a bit too ambitious.
• 46:20
  SPEAKER_01: Or whether the goal is ambitious.
• 46:22
  SPEAKER_01: Too ambitious.
• 46:22
  SPEAKER_00: One to 10.
• 46:33
  SPEAKER_01: Another question which I know said you might not comment, but remiss if don't address it.
• 46:37
  SPEAKER_01: Think there was a ruling about the Safaricom thing and fans not coming in.
• 46:42
  SPEAKER_01: What would be your take on that?
• 46:43
  SPEAKER_01: I know your response, but I want you to say it.
• 46:46
  SPEAKER_00: No, I just also saw the headline.
• 46:48
  SPEAKER_00: This evening as I was preparing to come for this piece.
• 46:51
  SPEAKER_00: Obviously, I've not read the ruling, so I'm not in a position to comment really on it.
• 46:56
  SPEAKER_00: I don't know the details.
• 46:57
  SPEAKER_01: Next time we'll ask you to bring the statements.
• 46:59
  SPEAKER_01: I will check on the ruling, but...
• 47:02
  SPEAKER_01: You take on the state of the statements.
• 47:03
  SPEAKER_01: I think there's someone who's not fully convinced.
• 47:05
  SPEAKER_01: There was a rush to set up the fund,
• 47:07
  SPEAKER_01: but then there's some funds that are going to sit there for a while
• 47:10
  SPEAKER_01: in treasury bill.
• 47:11
  SPEAKER_01: So it's like the government sold off very quickly,
• 47:14
  SPEAKER_01: put the funds in the NIF and then you're still lending to government and
• 47:17
  SPEAKER_01: then government will use that to do more projects, so to speak.
• 47:20
  SPEAKER_01: Whether that's circular financing, what would you respond to that?
• 47:24
  SPEAKER_00: Imagine you are the one with CS of treasury.
• 47:25
  SPEAKER_00: I'm not there.
• 47:26
  SPEAKER_00: Imagine you are the one.
• 47:27
  SPEAKER_00: And then the other day I saw a statement that A very large percentage
• 47:31
  SPEAKER_00: of our tax revenues are going to debt payment.
• 47:35
  SPEAKER_00: I don't know if you remember that, a very large percentage.
• 47:37
  SPEAKER_00: So then you start having
• 47:38
  SPEAKER_00: to figure out how do I finance critical national infrastructure
• 47:42
  SPEAKER_01: if I can't borrow.
• 47:43
  SPEAKER_00: And so the idea is to say, look, I can sell what I already have.
• 47:46
  SPEAKER_00: If you look at the dividend that you're foregoing, Maybe 7 billion a year.
• 47:50
  SPEAKER_00: Just changing the form of the asset to a different type of asset.
• 47:54
  SPEAKER_00: I think, but then I can use that money to be my capital to invest in these other assets.
• 47:58
  SPEAKER_00: I can understand with my experience in Centum, people are very averse to sending assets.
• 48:03
  SPEAKER_00: That's what I've come to discover.
• 48:05
  SPEAKER_00: Even changing the form of the asset, even saying, I recommend put the money in the airport.
• 48:10
  SPEAKER_00: People are of us.
• 48:11
  SPEAKER_00: And I think that's the general nature of people.
• 48:12
  SPEAKER_00: But this is what this is.
• 48:14
  SPEAKER_00: It's just saying we can be a more active manager of our assets,
• 48:17
  SPEAKER_00: meaning we don't have to own the assets in one form.
• 48:19
  SPEAKER_00: We can change them.
• 48:20
  SPEAKER_00: But in the interim,
• 48:21
  SPEAKER_00: if we're going to have it in cash,
• 48:22
  SPEAKER_00: then does it make sense to hold it, not earning money?
• 48:24
  SPEAKER_00: Because even IF had not bought the bills, they would have sold to somebody else.
• 48:29
  SPEAKER_00: Because treasury is not increasing how much they're going to borrow because of NIFs.
• 48:32
  SPEAKER_00: So somebody else is going to lend to them either foreign or whatever.
• 48:35
  SPEAKER_00: So their budget is not changing.
• 48:37
  SPEAKER_00: So in a sense, this is new money that is coming in.
• 48:39
  SPEAKER_00: So that's a sense.
• 48:40
  SPEAKER_00: It's just that assets are changing on.
• 48:43
  SPEAKER_00: And for many of your viewers,
• 48:44
  SPEAKER_00: you might find actually they trade a lot more frequently
• 48:47
  SPEAKER_00: on their own personal portfolio.
• 48:48
  SPEAKER_00: But when institutional investors tell an asset, they're seeing a problem.
• 48:52
  SPEAKER_00: This is sort of strategic exits and redeployment.
• 48:55
  SPEAKER_00: Which I think is a lot better than what was happening before where you sell
• 48:58
  SPEAKER_00: and you pay salaries and you just incur current income.
• 49:01
  SPEAKER_00: So you have not traced where that asset went.
• 49:03
  SPEAKER_01: I like that you use the word tracing there because that's related to
• 49:06
  SPEAKER_01: a question here we received.
• 49:07
  SPEAKER_01: There's been a lot of informational symmetry and reputation
• 49:10
  SPEAKER_01: The challenges around infrastructure projects in the past.
• 49:13
  SPEAKER_01: So do you commit yourself to transparency and building that investor confidence so
• 49:18
  SPEAKER_01: that it operates a little bit more like the public markets,
• 49:21
  SPEAKER_01: at least the NSE and all, where people can get a bit of reports, dig into it.
• 49:27
  SPEAKER_01: That has been the biggest challenge that you've had,
• 49:29
  SPEAKER_01: especially in terms of getting information from government.
• 49:32
  SPEAKER_01: So how would you balance that out and how do you commit to transparency and building
• 49:35
  SPEAKER_01: that investor confidence?
• 49:36
  SPEAKER_00: So first, remember when you asked me the first question, what is NIF?
• 49:39
  SPEAKER_00: I told you it's a development finance institution.
• 49:43
  SPEAKER_00: And I gave you examples of KFW, Africa Finance Corporation, TDD.
• 49:48
  SPEAKER_00: My role is a founder CEO.
• 49:49
  SPEAKER_00: I'm there to build a culture of a world-class development finance institution.
• 49:54
  SPEAKER_00: This is not a government department, it's a DFI.
• 49:57
  SPEAKER_00: Today, our shareholder is government of Kenya.
• 49:59
  SPEAKER_00: Maybe in five years, people will open it up to other governments to participate.
• 50:04
  SPEAKER_00: You never know, this may become a large DFI.
• 50:07
  SPEAKER_00: So we'll operate to the same standards of other DFIs.
• 50:10
  SPEAKER_00: In fact,
• 50:10
  SPEAKER_00: we're in discussions with some of the leading African DFIs
• 50:13
  SPEAKER_00: to see how they can support us in how we report, how we run things.
• 50:17
  SPEAKER_00: I only started my tenure on Monday.
• 50:19
  SPEAKER_00: Between Monday and now, I did two interviews on Tuesday, a panel session on Tuesday.
• 50:24
  SPEAKER_00: I'm meeting you today on Monday.
• 50:26
  SPEAKER_00: So we're very open to meet with investors.
• 50:29
  SPEAKER_00: I've been engaging with investors almost every day.
• 50:31
  SPEAKER_00: So we tend to have a very high level of transparency
• 50:34
  SPEAKER_00: and accountability like any other DFI would.
• 50:37
  SPEAKER_00: The fact that government is a shareholder in an entity does not mean that an entity is opaque.
• 50:41
  SPEAKER_00: If we look, the government is for long term was one of the largest shareholders.
• 50:45
  SPEAKER_00: It was not an opaque entity, correct?
• 50:47
  SPEAKER_00: Even central people don't realize government is 24% shareholder.
• 50:51
  SPEAKER_00: It's not a big.
• 50:52
  SPEAKER_00: So the shareholder of NIF doesn't mean NIF becomes an opaque entity.
• 50:57
  SPEAKER_00: It can be a world-class entity regardless of who the shareholder is.
• 51:02
  SPEAKER_01: Someone is afraid that taking up leverage would make things a bit more difficult.
• 51:06
  SPEAKER_01: It could magnify both successes and failures.
• 51:08
  SPEAKER_01: So if projects fail, what happens there in terms of those projects?
• 51:13
  SPEAKER_01: It's non-recourse.
• 51:14
  SPEAKER_01: So what happens?
• 51:14
  SPEAKER_01: It's non-recourse.
• 51:15
  SPEAKER_00: It's non-recourse.
• 51:17
  SPEAKER_00: Okay, I bet we want to do this.
• 51:41
  SPEAKER_00: He was telling me about letters of support.
• 51:43
  SPEAKER_00: And I told him, look, there are no letters of support here on commercials.
• 51:46
  SPEAKER_00: You can only get a letter of support on political risk.
• 51:48
  SPEAKER_00: Commercial risk you have to take if you want to provide that to NIF.
• 51:52
  SPEAKER_00: That's a risk.
• 51:53
  SPEAKER_00: So the lenders have to evaluate the projects from their merits and see
• 51:56
  SPEAKER_00: that they're willing to fund the projects based on the cash flows of those projects.
• 51:59
  SPEAKER_01: But then the projects here, they are national projects, so to speak, say, JKA fields.
• 52:05
  SPEAKER_01: Now, what does that mean then?
• 52:07
  SPEAKER_01: Practically, it has very serious ramifications for the country.
• 52:10
  SPEAKER_00: No.
• 52:11
  SPEAKER_00: Typically, what would happen is that the equity investors would be wiped out.
• 52:15
  SPEAKER_00: Yeah.
• 52:15
  SPEAKER_00: That's what tends to happen.
• 52:17
  SPEAKER_00: But the airport will continue running because then the lender at least is collecting
• 52:22
  SPEAKER_00: the air passenger service revenue depending on how it's been structured.
• 52:25
  SPEAKER_00: So that would be the implication.
• 52:28
  SPEAKER_00: So it's irrational for a lender to close JKA.
• 52:31
  SPEAKER_00: How do you recover your money that way?
• 52:33
  SPEAKER_00: So what would happen is that the ones who put in equity are the ones who'd be wiped out.
• 52:37
  SPEAKER_00: And that's why the equity investors...
• 52:39
  SPEAKER_00: And the remaining C-suite, where should we apply, by the way?
• 52:40
  SPEAKER_00: There was an application out.
• 52:42
  SPEAKER_00: I think I posted more than twice when we were in Keen, encouraging people to apply.
• 52:45
  SPEAKER_00: The application was closed last week.
• 53:03
  SPEAKER_00: No problem.
• 53:04
  SPEAKER_00: You just give me a good vision.
• 53:05
  SPEAKER_00: I've been pitching the vision of ability to do have impact.
• 53:21
  SPEAKER_00: The scale, you'd be able to handle some of the largest and most significant projects.
• 53:26
  SPEAKER_00: So when you sit down to write your memoirs,
• 53:28
  SPEAKER_00: you'll say,
• 53:29
  SPEAKER_00: I was involved in financing the airport,
• 53:31
  SPEAKER_00: the port, major highways, this will be on your city.
• 53:35
  SPEAKER_00: Isn't that interesting?
• 53:36
  SPEAKER_00: Yeah, the vision is good.
• 53:37
  SPEAKER_00: So what do you want to build?
• 53:39
  SPEAKER_00: The only challenge is the job.
• 53:41
  SPEAKER_00: You don't have to start a big net, but we can take a sacrifice for three years.
• 53:45
  SPEAKER_00: Because it would probably be a real contract, yeah?
• 53:47
  SPEAKER_00: So that has been my pitch to a lot of the senior partners.
• 53:51
  SPEAKER_00: I've pitched to senior partners of law firms, senior partners of V4 firms.
• 53:55
  SPEAKER_00: And some have applied.
• 53:56
  SPEAKER_00: They're treating it like a sabbatical.
• 53:57
  SPEAKER_00: We come and work here for the business, set it up, then we'll go back.
• 54:00
  SPEAKER_01: When you have more opportunities, just send us away.
• 54:02
  SPEAKER_01: We might consider joining you there.
• 54:04
  SPEAKER_00: If they're level below the C-suit, they will come with the same pitch.
• 54:07
  SPEAKER_00: They are only the communication departments.
• 54:10
  SPEAKER_00: That we set up.
• 54:11
  SPEAKER_00: To be a question on communication, we set up a whole process.
• 54:14
  SPEAKER_00: Department on Communication,
• 54:16
  SPEAKER_00: because communication is so critical just to deal with this issue
• 54:19
  SPEAKER_00: where I've seen it.
• 54:20
  SPEAKER_00: So there's a department just dealing with nothing else but communication.
• 54:24
  SPEAKER_00: If you look at your foreign profile,
• 54:26
  SPEAKER_00: there's a lot to do with financial reporting and things like that.
• 54:29
  SPEAKER_00: So because of just the criticality of those issues.
• 54:32
  SPEAKER_01: Somebody's asking whether there's a way in which,
• 54:34
  SPEAKER_01: I think it's Tim,
• 54:35
  SPEAKER_01: I was involved in helping out,
• 54:37
  SPEAKER_01: set up part of the NIF, I think could be the IPS or something like that.
• 54:41
  SPEAKER_01: But then the question is,
• 54:42
  SPEAKER_01: the vision was that,
• 54:44
  SPEAKER_01: is there any possible way in which NIF can be a co-guarantee
• 54:47
  SPEAKER_01: and not necessarily own,
• 54:48
  SPEAKER_01: and in that way, more capital is credited in without deploying capital?
• 54:52
  SPEAKER_00: To be a guarantor?
• 54:53
  SPEAKER_01: Yes.
• 54:53
  SPEAKER_01: Instead of putting in capital, you just guarantee.
• 54:56
  SPEAKER_00: Look, maybe Tim has a point.
• 54:57
  SPEAKER_00: We are learning all the time.
• 54:59
  SPEAKER_00: I need to check the NIF Act Section 19.
• 55:01
  SPEAKER_00: It provides so many different security mechanisms that you can invest.
• 55:06
  SPEAKER_00: Let me explore your idea.
• 55:08
  SPEAKER_00: But if you submitted that idea,
• 55:09
  SPEAKER_00: just look at it in the context and see whether it fits in the context of Section 19
• 55:13
  SPEAKER_00: of the NIF Act.
• 55:14
  SPEAKER_00: Section 19 provides we can invest by of equity investment or debt based
• 55:18
  SPEAKER_00: on bankability of the project or other project finance mechanism.
• 55:21
  SPEAKER_00: It does not provide for any other form of investment.
• 55:25
  SPEAKER_01: At the end of the conversation now, we've had a much longer conversation than we usually do.
• 55:29
  SPEAKER_01: There are lots of questions.
• 55:30
  SPEAKER_01: I think I'll forward some of them so that you can think about it.
• 55:32
  SPEAKER_01: And then next time we host, you can answer some of them.
• 55:35
  SPEAKER_01: I think the key aspect,
• 55:36
  SPEAKER_01: maybe a recap perhaps and give you a chance to,
• 55:38
  SPEAKER_01: first of all,
• 55:39
  SPEAKER_01: recap what the NIF is and the vision of what you're building and how three
• 55:43
  SPEAKER_01: to five years from now,
• 55:44
  SPEAKER_01: what's your vision on where the fund should be at that particular point in time
• 55:48
  SPEAKER_01: and invite people to come along with you in the process.
• 55:51
  SPEAKER_01: So it's a chance to you elevate a pitch.
• 55:53
  SPEAKER_01: Over to you now, James.
• 55:54
  SPEAKER_00: In summary, the National Infrastructure Fund is Kenya's development finance institution
• 56:00
  SPEAKER_00: that is geared towards catalyzing the development
• 56:04
  SPEAKER_00: of national infrastructure projects.
• 56:07
  SPEAKER_00: And these are our projects.
• 56:08
  SPEAKER_00: That's what I said in the Africa Capital Week.
• 56:11
  SPEAKER_00: They're not the president's projects.
• 56:12
  SPEAKER_00: They are our projects.
• 56:13
  SPEAKER_00: And these national infrastructure assets are very critical for the competitiveness
• 56:19
  SPEAKER_00: of our economy.
• 56:20
  SPEAKER_00: I don't think there's anyone on this call.
• 56:21
  SPEAKER_00: Whose business is not affected by power, energy,
• 56:25
  SPEAKER_00: by transport and logistics,
• 56:27
  SPEAKER_00: by ICT infrastructure, by cost of food and water and irrigation.
• 56:31
  SPEAKER_00: The consequences of these projects touch livelihoods and businesses of everybody.
• 56:36
  SPEAKER_00: And as I requested again at the Africa Capital Week,
• 56:38
  SPEAKER_00: let's not just for calls, let us help make this.
• 56:41
  SPEAKER_00: A better structure because we are building projects without raising taxation,
• 56:45
  SPEAKER_00: which has been a key issue for many of us.
• 56:47
  SPEAKER_00: This is a fund that enables us to catalyze domestic and international capital
• 56:52
  SPEAKER_00: towards the development of our infrastructure,
• 56:54
  SPEAKER_00: not just for this generation, but for future generations.
• 56:57
  SPEAKER_00: And so I invite all of you.
• 57:00
  SPEAKER_00: Offer support to this critical venture.
• 57:02
  SPEAKER_00: That's why I've left the business I'm doing.
• 57:03
  SPEAKER_00: To focus on this and to help make a contribution in establishing it and making it a success.
• 57:09
  SPEAKER_00: Thank you very much again for listening to me and thank you very much, Eric, for hosting me.
• 57:14
  SPEAKER_01: So I'll say to you what a good friend of mine has texted me that I think
• 57:18
  SPEAKER_01: that your biggest challenge is managing the political risk or element.
• 57:21
  SPEAKER_01: Well, we wish you all the best in your new role and hope you succeed.
• 57:25
  SPEAKER_01: And for the sake of the country that you also succeed,
• 57:27
  SPEAKER_01: because if you succeed, The country will also do well.
• 57:30
  SPEAKER_01: Hopefully you bring in very high and professional standards to the fund and be able
• 57:34
  SPEAKER_01: to make it a world-class success,
• 57:36
  SPEAKER_01: not in the way of one MDB,
• 57:37
  SPEAKER_01: but in the way of the rest of the funds,
• 57:40
  SPEAKER_01: which have been pretty successful,
• 57:41
  SPEAKER_01: including,
• 57:41
  SPEAKER_01: I think,
• 57:42
  SPEAKER_01: the Norwegian Sovereign Wealth Fund,
• 57:44
  SPEAKER_01: which I think could be a good one to learn from in terms of best practices.
• 57:47
  SPEAKER_01: So all the best and thank you for joining us.
• 57:49
  SPEAKER_01: It's your second week and you still managed to do a lot of interviews.
• 57:52
  SPEAKER_01: We'll assemble a few of the questions and send them to you.
• 57:54
  SPEAKER_01: You can respond to them at your convenience also.
• 57:57
  SPEAKER_00: Thank you very much.
• 57:58
  SPEAKER_00: And don't just send questions, we'll send suggestions.
• 58:00
  SPEAKER_00: And it's help all of us.
• 58:02
  SPEAKER_00: And the fund helped me.
• 58:03
  SPEAKER_00: Let's shield it from political interference and other interference so
• 58:06
  SPEAKER_00: that it can do what it has been mandated to do.
• 58:09
  SPEAKER_00: It will be of benefit to all of us when it is successful and it should be successful
• 58:13
  SPEAKER_00: with our collective support.
• 58:15
  SPEAKER_01: Thank you so much for joining us today on Mwango Spaces, James and the audience.
• 58:18
  SPEAKER_01: And bye-bye from me and from James.